The last year has been an incredible one – incredible returns and incredible danger. The crash of 2008 was stunning. From Oct 2007 to Mar 2009, the market fell about 55%. In other words, what was $100 became $45 in 15 months.
That we’d have a big rally after the crash was no surprise, but what a rally it was. Starting in mid-March, that $45 climbed to $65 by mid-June. That’s about 40% in three months.
After that, markets were looking shaky. The economy was getting worse. The danger of markets falling was high. We decided to preserve capital. We sold the ETFs we had bought in Feb (taking profits on all of them) and kept the gold and bond ETFs.
Markets did fall in July – by about 7% – but then the rally continued, though not as strong as before. And it was marked by huge swings on a daily basis and another 7% fall in October. Overall, the second half finished positive but after a real roller coaster of a ride.
Given the risks and the information at the time, we believe our cautious approach was the right one for preserving capital.
Looking ahead, since November we have been invested in US, Canada, India and Latin America equity ETFs. They have all performed well since then. We will maintain and possibly increase our exposure in the next few weeks. But many of the market risks are still there. Growing government and consumer debt. High unemployment. And a possible credit bubble in China. Any recovery will be a rough one.
For us, that means 2010 will be a year to step cautiously and be ready to retreat at the first sign of danger.